Nikolai Battoo, BC Capital Group S.A. (Panama), BC Capital Group Limited (Hong Kong), and Tracy Lee Sunderlage
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23104A / October 6, 2014
Securities and Exchange Commission v. Nikolai Battoo, BC Capital Group S.A. (Panama), BC Capital Group Limited (Hong Kong), and Tracy Lee Sunderlage, Civil Action No. 12-CV-7125 (N.D. Ill., filed September 6, 2012)
Court Imposes Injunctions and Monetary Sanctions of Over $350 Million Against Nikolai Battoo and His Companies
The Securities and Exchange Commission announced today that, on September 30, 2014, Judge Edmond E. Chang, of the U.S. District Court for the Northern District of Illinois, Eastern Division, in Chicago, Illinois, issued an Order and Final Judgment by default, imposing sanctions against defendants Nikolai Battoo and two companies he controlled, BC Capital Group S.A. (Panama) and BC Capital Group Limited (Hong Kong). Judge Chang imposed permanent injunctions against Battoo and his two BC Capital companies and ordered them to pay $290,129,196.86 in disgorgement and prejudgment interest. Judge Chang also ordered Battoo and his two BC Capital companies to pay a civil penalty totaling $68 million, concluding that such a penalty was appropriate "because of the sheer enormity of the fraud, both in dollar figure and number of investors. There must be a substantial penalty both to punish the Battoo Defendants, and to deter others from committing fraud on this scale." In total, the disgorgement, prejudgment interest, and penalty imposed, jointly and severally, on Battoo and his two BC Capital companies totaled $358,129,196.86.
In its case, the SEC alleged Battoo was a hedge fund manager who defrauded numerous investors located worldwide by claiming to achieve exceptional risk-adjusted returns while concealing huge losses suffered by his asset management operation and his misappropriation of investor funds to pay for his flamboyant lifestyle. By 2012, Battoo and his BC Capital entities had raised more than $400 million from investors, including more than $200 million from U.S.-based investors. According to the SEC, Battoo's fraud began by at least 2008, when he incurred major losses caused by a failed derivative investment program and leveraged investments in Madoff feeder funds. Rather than disclose the losses to investors, Battoo hid them. From at least 2008, Battoo caused fraudulent account statements to be sent to investors, their auditors, and others that concealed the massive losses and grossly misstated the existence and value of nearly all of the investments in those accounts. According to the SEC, Battoo also misappropriated at least $49 million of investor funds so that he could live the high life during his scheme.
The SEC filed its Complaint in September 2012. On the day the SEC filed its action, Judge Chang granted its request for a temporary restraining order and entered an asset freeze, and later entered a preliminary injunction against Battoo and his BC companies. In its Order, the Court permanently enjoined Battoo and his BC Capital companies from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.
In its September 2012 Complaint, the SEC also named Tracy Sunderlage as a defendant. In its Complaint, the SEC alleged that Sunderlage, who was previously barred from association with a broker-dealer or investment adviser (In re TLS Fin. Servs., Inc. et al, Admin. Proceeding File No. 3-6699, Rel. No. 34-23540 (Aug. 18, 1986)), acted as an unregistered broker-dealer and investment adviser in violation of his bar. According to the complaint, Sunderlage received commissions from Battoo for directing investments into Battoo's investment program and also received management fees for acting as investment adviser to numerous clients, many of whom invested with Battoo based on Sunderlage's advice. The SEC's litigation against Sunderlage is ongoing.
The SEC's investigation was conducted by John D. Mitchell. The investigation was assisted by Carlos CostaRodrigues, Marianne Olson, and Alberto Arevalo in the agency's Office of International Affairs. The litigation was led by Daniel J. Hayes and John D. Mitchell. The SEC appreciates the assistance of the Securities Commission of the Bahamas, British Virgin Islands Financial Services Commission, and Guernsey Financial Services Commission.
Press Release No. 2012-185 (Sept. 7, 2012)